Mueller Water Products(MWA) - 2025 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and related disclosures for Mueller Water Products, Inc Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Mueller Water Products, Inc. and its subsidiaries for the periods ended June 30, 2025, and September 30, 2024 (balance sheet), and June 30, 2025, and 2024 (statements of operations, comprehensive income, stockholders' equity, and cash flows) It includes detailed notes explaining the company's organization, accounting policies, revenue recognition, income taxes, borrowing arrangements, retirement plans, stock-based compensation, supplemental balance sheet information, segment performance, accumulated other comprehensive loss, commitments, contingencies, and subsequent events Unaudited Condensed Consolidated Balance Sheets This section presents the company's financial position as of June 30, 2025, and September 30, 2024 | Metric | June 30, 2025 (in millions) | September 30, 2024 (in millions) | | :-------------------------------- | :----------------------------- | :--------------------------------- | | Assets: | | | | Cash and cash equivalents | $372.0 | $309.9 | | Receivables, net | $205.4 | $208.9 | | Inventories, net | $316.6 | $301.7 | | Total current assets | $937.8 | $858.4 | | Property, plant and equipment, net | $327.8 | $318.8 | | Total assets | $1,730.4 | $1,635.9 | | Liabilities and Stockholders' Equity: | | | | Total current liabilities | $242.8 | $258.0 | | Long-term debt | $449.8 | $448.7 | | Total liabilities | $801.4 | $825.8 | | Total stockholders' equity | $929.0 | $810.1 | | Total liabilities and stockholders' equity | $1,730.4 | $1,635.9 | Unaudited Condensed Consolidated Statements of Operations This section details the company's financial performance for the three and nine months ended June 30, 2025 and 2024 | Metric | Three months ended June 30, 2025 (in millions) | Three months ended June 30, 2024 (in millions) | Nine months ended June 30, 2025 (in millions) | Nine months ended June 30, 2024 (in millions) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net sales | $380.3 | $356.7 | $1,048.9 | $966.5 | | Gross profit | $145.7 | $131.4 | $376.7 | $348.1 | | Operating income | $73.7 | $67.0 | $191.0 | $153.3 | | Income before income taxes | $72.0 | $63.2 | $185.5 | $139.0 | | Net income | $52.5 | $47.3 | $139.1 | $105.9 | | Net income per basic share | $0.34 | $0.30 | $0.89 | $0.68 | | Net income per diluted share | $0.33 | $0.30 | $0.88 | $0.68 | | Dividends declared per share | $0.067 | $0.064 | $0.201 | $0.192 | Unaudited Condensed Consolidated Statements of Comprehensive Income This section presents the company's comprehensive income for the three and nine months ended June 30, 2025 and 2024 | Metric | Three months ended June 30, 2025 (in millions) | Three months ended June 30, 2024 (in millions) | Nine months ended June 30, 2025 (in millions) | Nine months ended June 30, 2024 (in millions) | | :------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net income | $52.5 | $47.3 | $139.1 | $105.9 | | Total other comprehensive income (loss), net of income tax | $20.6 | $(3.8) | $18.9 | $6.3 | | Comprehensive income | $73.1 | $43.5 | $158.0 | $112.2 | Unaudited Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in stockholders' equity for the nine months ended June 30, 2025 and 2024 | Metric | September 30, 2024 (in millions) | June 30, 2025 (in millions) | | :-------------------------------- | :----------------------------- | :-------------------------- | | Total Stockholders' Equity | $810.1 | $929.0 | | Net income (9 months) | $105.9 (2024) | $139.1 (2025) | | Dividends declared (9 months) | $(29.9) (2024) | $(31.4) (2025) | | Stock repurchased (9 months) | $(10.0) (2024) | $(15.0) (2025) | Unaudited Condensed Consolidated Statements of Cash Flows This section details the company's cash inflows and outflows for the nine months ended June 30, 2025 and 2024 | Metric | Nine months ended June 30, 2025 (in millions) | Nine months ended June 30, 2024 (in millions) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $135.8 | $149.5 | | Net cash used in investing activities | $(32.7) | $(27.9) | | Net cash used in financing activities | $(47.2) | $(40.7) | | Net change in cash and cash equivalents | $62.1 | $83.0 | | Cash and cash equivalents at end of period | $372.0 | $243.3 | Notes to the Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements Note 1. Organization and Basis of Presentation This note describes the company's business segments, seasonal operations, and significant accounting policies - Mueller Water Products operates in two segments: Water Flow Solutions (iron gate valves, specialty valves, service brass products) and Water Management Solutions (fire hydrants, repair/installation, natural gas, metering, leak detection, pressure management)[24] - The business is seasonal, with net sales and operating income historically lowest in the December 31 and March 31 quarters due to cold weather restricting construction in the northern U.S. and Canada[26] - The company recorded $5.1 million in Strategic reorganization and other charges for the nine months ended June 30, 2025, down from $12.7 million in the prior year, related to leadership transition, asset impairment, and transaction expenses[32] - The company is involved in a New Markets Tax Credit (NMTC) program for its brass foundry, consolidating related variable interest entities (VIEs) and expecting to recognize an estimated gain of $3.9 million in December 2027[33][35][36] Note 2. Revenue from Contracts with Customers This note details the company's revenue recognition policies and related contract balances | Metric | June 30, 2025 (in millions) | September 30, 2024 (in millions) | | :-------------------------- | :----------------------------- | :--------------------------------- | | Receivables, net | $205.4 | $208.9 | | Deferred revenue | $11.3 | $12.8 | | Metric | Nine months ended June 30, 2025 (in millions) | Nine months ended June 30, 2024 (in millions) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Beginning balance (Allowance for Credit Losses) | $8.3 | $7.3 | | Provision (reversed) charged to expense | $(0.2) | $2.3 | | Write-offs and other | $(2.8) | $(1.7) | | Ending balance (Allowance for Credit Losses) | $5.3 | $7.9 | | Metric | Nine months ended June 30, 2025 (in millions) | Nine months ended June 30, 2024 (in millions) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Beginning balance (Deferred Revenue) | $12.8 | $9.2 | | Revenue deferred during the period | $6.2 | $6.9 | | Previously deferred revenue recognized | $(7.7) | $(5.0) | | Ending balance (Deferred Revenue) | $11.3 | $11.1 | - Revenue for product sales is recognized upon shipment when control transfers to the customer Performance obligations for software hosting and leak detection monitoring services are satisfied over time[45][47] Note 3. Income Taxes This note provides information on the company's effective income tax rates and unrecognized tax benefits | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | U.S. federal statutory income tax rate | 21.0 % | 21.0 % | 21.0 % | 21.0 % | | Effective income tax rate | 27.1 % | 25.2 % | 25.0 % | 23.8 % | - Gross liabilities for unrecognized income tax benefits increased to $3.6 million at June 30, 2025, from $3.0 million at September 30, 2024[52] - The company is assessing the impact of the newly enacted H.R. 1 (One Big Beautiful Bill Act) but does not expect a material impact on its financial statements or estimated annual effective tax rate for 2025[54] Note 4. Borrowing Arrangements This note outlines the company's debt structure, credit facilities, and related fair values | Debt Component | June 30, 2025 (in millions) | September 30, 2024 (in millions) | | :----------------------- | :----------------------------- | :--------------------------------- | | 4.0% Senior Notes | $450.0 | $450.0 | | Finance leases | $3.5 | $2.7 | | Total debt | $453.5 | $452.7 | | Long-term debt (net) | $449.8 | $448.7 | - The ABL agreement provides a revolving credit facility of up to $175.0 million, maturing in March 2029, with an excess availability of $163.0 million at June 30, 2025[55][61] - The 4.0% Senior Unsecured Notes, totaling $450.0 million, mature on June 15, 2029, and had a fair value of $432.7 million at June 30, 2025[62][63] Note 5. Retirement Plan This note details the company's net periodic pension costs for the reported periods | Metric | Three months ended June 30, 2025 (in millions) | Three months ended June 30, 2024 (in millions) | Nine months ended June 30, 2025 (in millions) | Nine months ended June 30, 2024 (in millions) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Service cost | $0.2 | $0.2 | $0.5 | $0.5 | | Pension expense (benefit) other than service | $— | $1.0 | $(0.1) | $3.0 | | Net periodic cost | $0.2 | $1.2 | $0.4 | $3.5 | Note 6. Stock-based Compensation Plans This note describes the company's stock-based compensation programs and related expenses | Grant Type | Total grant date fair value (in millions) - 9 months ended June 30, 2025 | | :-------------------------------- | :----------------------------------------------------------------------- | | MRSUs | $2.7 | | PRSUs | $1.8 | | Restricted stock units | $4.4 | | Phantom Plan instruments | $3.4 | | Non-qualified stock options | $1.8 | | Employee stock purchase plan instruments | $0.3 | | Total | $14.4 | - Operating income included stock-based compensation expense of $3.2 million for the three months ended June 30, 2025 (down from $3.7 million in 2024) and $10.8 million for the nine months ended June 30, 2025 (up from $10.1 million in 2024)[78] - As of June 30, 2025, there was approximately $13.0 million of unrecognized compensation expense related to stock-based compensation, to be expensed through March 2028[78] Note 7. Supplemental Balance Sheet Information This note provides additional details on specific asset and liability categories from the balance sheet | Asset Category | June 30, 2025 (in millions) | September 30, 2024 (in millions) | | :-------------------------------- | :----------------------------- | :--------------------------------- | | Inventories, net | $316.6 | $301.7 | | Property, plant and equipment, net | $327.8 | $318.8 | | Goodwill, net | $87.6 | $80.7 | | Total other current assets | $43.8 | $37.9 | | Total other noncurrent assets | $69.1 | $68.3 | | Liability Category | June 30, 2025 (in millions) | September 30, 2024 (in millions) | | :-------------------------------- | :----------------------------- | :--------------------------------- | | Total other current liabilities | $123.2 | $147.3 | | Total other noncurrent liabilities | $58.9 | $63.7 | - Goodwill, entirely within the Water Management Solutions segment, increased to $87.6 million at June 30, 2025, from $80.7 million at September 30, 2024, primarily due to changes in foreign currency exchange rates[82][83] Note 8. Segment Information This note presents financial performance data for the company's Water Flow Solutions and Water Management Solutions segments | Metric | Water Flow Solutions (3 months) | Water Management Solutions (3 months) | Water Flow Solutions (9 months) | Water Management Solutions (9 months) | | :-------------------------------- | :------------------------------ | :------------------------------------ | :------------------------------ | :------------------------------------ | | Net revenue (2025) | $216.6 million | $163.7 million | $607.4 million | $441.5 million | | Net revenue (2024) | $208.1 million | $148.6 million | $555.2 million | $411.3 million | | Operating income (2025) | $60.5 million | $30.1 million | $149.9 million | $88.7 million | | Operating income (2024) | $57.8 million | $25.5 million | $137.6 million | $69.6 million | | Capital expenditures (2025) | $5.3 million | $6.4 million | $15.8 million | $17.0 million | | Capital expenditures (2024) | $6.2 million | $6.0 million | $16.1 million | $11.9 million | - Water Flow Solutions' net revenue increased 4.1% for the three months and 9.4% for the nine months ended June 30, 2025, driven by increased volumes and higher pricing[84] - Water Management Solutions' net revenue increased 10.2% for the three months and 7.3% for the nine months ended June 30, 2025, also due to increased volumes and higher pricing[84] Note 9. Accumulated Other Comprehensive Loss This note details the components and changes in accumulated other comprehensive loss | Component | September 30, 2024 (in millions) | June 30, 2025 (in millions) | | :-------------------------------- | :----------------------------- | :-------------------------- | | Pension actuarial amortization, net of income tax | $(19.7) | $(18.5) | | Foreign currency translation, net of income tax | $(11.1) | $6.6 | | Total Accumulated Other Comprehensive Loss | $(30.8) | $(11.9) | - Total accumulated other comprehensive loss decreased from $(30.8) million at September 30, 2024, to $(11.9) million at June 30, 2025, primarily due to $17.7 million in foreign currency translation income[85] Note 10. Commitments and Contingencies This note outlines the company's legal proceedings, environmental matters, and other contingent liabilities - The company is involved in various legal proceedings, including environmental matters where Tyco International plc has an indemnification obligation, and a Superfund site in North Birmingham, Alabama, for which no amount has been accrued due to estimation uncertainty[86][88][89] - A CBP matter regarding underpaid duties for certain products resulted in an assessment of approximately $9.0 million, which the company had originally expensed $9.1 million for in 2024[90][91] - A cybersecurity incident led to a putative class action lawsuit, which the company settled for an aggregate cap of $285,000 for class members, plus legal fees and a service award, subject to court approval[92] Note 11. Subsequent Events This note discloses significant events occurring after the balance sheet date - On July 30, 2025, the Board of Directors declared a quarterly dividend of $0.067 per share, payable on or about August 21, 2025[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of the company's business, a detailed analysis of its financial performance for the three and nine months ended June 30, 2025, compared to the prior year, and a discussion of its financial condition, liquidity, and capital resources It highlights key factors impacting results, such as sales growth, gross margin changes, operating expenses, and strategic initiatives, while also addressing external challenges like geopolitical events, cybersecurity incidents, and inflationary pressures Overview This section provides an overview of the company's business, market segments, and key operational challenges - Mueller Water Products operates in two segments: Water Flow Solutions (57% of FY2024 net sales) and Water Management Solutions (43% of FY2024 net sales)[102] - Approximately 60-65% of 2024 net sales were from municipal water infrastructure repair/replacement, 25-30% from residential construction, and 10% from natural gas utilities/industrial applications[103] - The Israel-Hamas war caused supply chain disruptions and labor challenges at the Ariel, Israel facility, leading to investments in recruiting, supplier expansion, and shifting manufacturing[104] - Cybersecurity incidents in fiscal 2024 caused temporary operational disruptions and incurred $1.5 million in expenses, but had no material impact on full fiscal 2024 consolidated net sales[105][106] - For fiscal year 2025, consolidated net sales are anticipated to increase between 6.9% and 7.6% compared to fiscal 2024, driven by resilient demand in municipal repair and replacement, despite economic uncertainties[108] - Inventory costs increased by approximately 1.5% in the first nine months of 2025 due to inflation, with further increases expected from new tariffs enacted after March 2025[110] Results of Operations This section analyzes the company's financial performance for the reported periods, highlighting key drivers and changes Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 This section compares the company's consolidated and segment financial results for the three months ended June 30 Consolidated Financial Performance (Three Months Ended June 30) | Metric | 2025 (in millions) | 2024 (in millions) | Change ($) | Change (%) | | :-------------------------------- | :----------------- | :----------------- | :--------- | :--------- | | Net sales | $380.3 | $356.7 | $23.6 | 6.6% | | Gross profit | $145.7 | $131.4 | $14.3 | 10.9% | | Gross margin | 38.3% | 36.8% | 1.5 pts | | | Selling, general and administrative | $71.0 | $61.5 | $9.5 | 15.4% | | Operating income | $73.7 | $67.0 | $6.7 | 10.0% | | Net interest expense | $1.7 | $2.8 | $(1.1) | (39.3)% | | Net income | $52.5 | $47.3 | $5.2 | 11.0% | - Gross profit was negatively impacted by approximately 7% due to inflation and increased tariffs[114] - SG&A expenses increased by $9.5 million, primarily due to a $9.1 million unfavorable foreign currency fluctuation (U.S. dollar depreciation vs. Israeli shekel), inflation, and higher personnel/third-party fees[115] Segment Net Sales (Three Months Ended June 30) | Segment | 2025 (in millions) | 2024 (in millions) | Change ($) | Change (%) | | :-------------------------- | :----------------- | :----------------- | :--------- | :--------- | | Water Flow Solutions | $216.6 | $208.1 | $8.5 | 4.1% | | Water Management Solutions | $163.7 | $148.6 | $15.1 | 10.2% | - Water Flow Solutions' gross margin decreased to 38.7% (from 39.4%), while Water Management Solutions' gross margin increased to 37.8% (from 33.3%)[120][123] - Water Management Solutions' SG&A increased significantly by $9.0 million (39.8%), mainly due to a $7.1 million unfavorable foreign currency impact[124] Nine months ended June 30, 2025 Compared to Nine months ended June 30, 2024 This section compares the company's consolidated and segment financial results for the nine months ended June 30 Consolidated Financial Performance (Nine Months Ended June 30) | Metric | 2025 (in millions) | 2024 (in millions) | Change ($) | Change (%) | | :-------------------------------- | :----------------- | :----------------- | :--------- | :--------- | | Net sales | $1,048.9 | $966.5 | $82.4 | 8.5% | | Gross profit | $376.7 | $348.1 | $28.6 | 8.2% | | Gross margin | 35.9% | 36.0% | (0.1) pts | | | Selling, general and administrative | $180.6 | $182.1 | $(1.5) | (0.8)% | | Operating income | $191.0 | $153.3 | $37.7 | 24.6% | | Net interest expense | $5.6 | $9.7 | $(4.1) | (42.3)% | | Net income | $139.1 | $105.9 | $33.2 | 31.3% | - Gross profit was negatively impacted by approximately 5% due to inflation and increased tariffs, and by a $4.1 million write-down of inventory and assets at the legacy brass foundry[128][134] - SG&A decreased by $1.5 million, primarily due to lower intangible amortization, partially offset by unfavorable foreign currency fluctuation and higher personnel/third-party fees[129] Segment Net Sales (Nine Months Ended June 30) | Segment | 2025 (in millions) | 2024 (in millions) | Change ($) | Change (%) | | :-------------------------- | :----------------- | :----------------- | :--------- | :--------- | | Water Flow Solutions | $607.4 | $555.2 | $52.2 | 9.4% | | Water Management Solutions | $441.5 | $411.3 | $30.2 | 7.3% | - Water Flow Solutions' gross margin decreased to 35.5% (from 37.0%), while Water Management Solutions' gross margin increased to 36.4% (from 34.6%)[134][137] Liquidity and Capital Resources This section discusses the company's cash position, borrowing capacity, and capital allocation strategies Cash and Borrowing Capacity (June 30, 2025) | Metric | Amount (in millions) | | :-------------------------------- | :------------------- | | Cash and cash equivalents | $372.0 | | Additional borrowing capacity under ABL | $163.0 | - The company repurchased $15.0 million of common stock during the nine months ended June 30, 2025, with $65.0 million remaining under the share repurchase authorization[142] - Cash flows provided by operating activities decreased by $13.7 million to $135.8 million for the nine months ended June 30, 2025, primarily due to changes in working capital and other assets/liabilities, despite increased net income[144] - Capital expenditures increased to $32.8 million for the nine months ended June 30, 2025, from $28.0 million in the prior year, driven by foundry investments and cybersecurity infrastructure improvements[145] - Expected capital expenditures for fiscal year 2025 are between $50.0 million and $52.0 million[145] - The company expects existing cash, equivalents, and borrowing capacity, combined with operating cash flows, to be sufficient for anticipated operating needs, tax payments, capital expenditures, and debt service for the next twelve months[146] Credit Ratings (June 30, 2025) | Rating Agency | Corporate Credit Rating | 4.0% Senior Notes Rating | Outlook | | :-------------- | :---------------------- | :----------------------- | :------ | | Moody's | Ba1 | Ba1 | Stable | | Standard & Poor's | BB | BB | Positive | Material Cash Requirements This section outlines the company's significant future cash obligations, including debt and lease payments - The company has debt obligations of $450.0 million 4.0% Senior Notes maturing in 2029, with annual cash interest payments of $18.0 million through 2029[158] - Cumulative cash obligations include $33.1 million for operating leases through 2034 and $4.0 million for finance leases through 2030[158] - Purchase obligations for raw materials and parts are approximately $128.7 million for the next 12 months and $1.4 million beyond June 30, 2026[158] Off-Balance Sheet Arrangements This section details the company's off-balance sheet commitments and guarantees - The company does not have relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements[159] - As of June 30, 2025, the company had $11.8 million in letters of credit and $13.4 million in surety bonds outstanding[160] Seasonality This section explains the seasonal impact on the company's net sales and operating income - The company's business is seasonal, with net sales and operating income typically lowest in the December 31 and March 31 quarters due to cold weather impacting construction[161] Critical Accounting Estimates This section confirms no changes to the company's critical accounting estimates since the prior fiscal year-end - There have been no changes in the company's determination of critical accounting estimates since September 30, 2024[162] Item 4. Controls and Procedures This section confirms that there have been no material changes to the company's internal control over financial reporting during the quarter ended June 30, 2025 The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of the end of the reporting period, while acknowledging the inherent limitations of any control system - No material changes occurred in internal control over financial reporting during the quarter ended June 30, 2025[163] - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025[165][166] - Management acknowledges that control systems provide reasonable, not absolute, assurance and have inherent limitations[167] PART II. OTHER INFORMATION This section provides additional disclosures on legal matters, risk factors, equity sales, and corporate governance Item 1. Legal Proceedings This section refers to Note 10 of the financial statements for details on legal proceedings, which include environmental matters, a CBP duty underpayment issue, and a cybersecurity incident class action lawsuit - Legal proceedings information is detailed in Note 10 to the Condensed Consolidated Financial Statements[170] Item 1A. Risk Factors This section directs readers to the company's 2024 Annual Report on Form 10-K for a comprehensive discussion of risk factors that could materially affect its business, financial condition, or operating results, noting that additional unknown or immaterial risks may also exist - Readers should refer to the 'RISK FACTORS' section in the 2024 Annual Report on Form 10-K for a comprehensive discussion of factors that could materially affect the business[171] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activities during the third quarter of fiscal 2025, indicating that 405,592 shares were repurchased under its authorized program, with $65.0 million remaining under the authorization Share Repurchase Activity (Third Quarter Fiscal 2025) | Period | Total shares purchased | Average price paid per share | Shares purchased under announced plans | Maximum dollar value remaining (in millions) | | :---------------- | :--------------------- | :--------------------------- | :------------------------------------- | :------------------------------------------- | | April 1-30, 2025 | — | $— | — | $75.0 | | May 1-31, 2025 | 405,592 | $24.64 | 405,592 | $65.0 | | June 1-30, 2025 | — | $— | — | $65.0 | | Total | 405,592 | $24.64 | 405,592 | | - The company has a stock repurchase program authorized for up to $250.0 million, increased in 2017 from $50.0 million[174] Item 5. Other Information This section states that no officers or directors adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No officers or directors adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[173] Item 6. Exhibits This section lists the exhibits filed with the quarterly report, including certifications from the CEO and CFO (Sections 302 and 906 of Sarbanes-Oxley Act), and XBRL formatted financial information - Exhibits include certifications from the CEO and CFO (31.1, 31.2, 32.1, 32.2) and XBRL formatted financial information (101, 104)[175]